How to Use a Non-Disclosure Agreement to Safeguard Your Company

What you’ll discover:

What exactly is a nondisclosure agreement?
Is a Non-Disclosure Agreement legally enforceable?
What should a Non-Disclosure Agreement include?
Non-Disclosure Agreements: How Long Do They Last?

Non-Disclosure Agreements (or NDAs) are sometimes known as confidentiality agreements, proprietary agreements, or secrecy agreements. Employers, corporations, artists, and other people utilize this legal document to prevent others from disclosing sensitive or humiliating information. For example, before meeting with investors, an entrepreneur may request that they sign NDAs to safeguard the confidentially of their unique company concept.

Making a Non-Disclosure Agreement is really rather simple, and it may be quite useful in certain situations. We’ll go through the fundamentals of NDAs, including their enforceability, what they must cover, and other crucial aspects.

What exactly is a nondisclosure agreement?

A Non-Disclosure Agreement is a legal instrument that mandates the opposite party to keep specific information private. They are especially popular in commercial settings since company owners do not want to reveal unique knowledge that offers them a competitive advantage in their market unless it is protected. An NDA may protect the following types of information:

Client lists Data processing
In-house created or utilized software
Order history Marketing strategies
New product blueprints

This document specifies which materials are deemed secret and what will happen if they are disclosed in breach of the agreement. Typically, the person or business owning the protected information stated in the NDA may legally compel the other party to pay monetary penalties for any losses incurred as a result of the unlawful disclosure.

The most obvious example is when an employee quits one company to work for another. In this case, the NDA would prohibit the employee from disclosing trade secrets or customer lists to their new company. Companies may choose to take it a step further and have workers sign Noncompete Agreements, which prohibit them from working for direct rivals or within a particular geographical range (these are not enforceable in some states). Another prominent example is when a freelancer or independent contractor signs a Non-Disclosure Agreement to safeguard a client’s sensitive information.

Mutual Non-Disclosure Agreements are another kind of agreement in which both parties agree to keep each other’s confidential information private. They are often used when developing a new product for a firm, inventing a new product, or forming a collaboration between two or more commercial organizations.

Is a Non-Disclosure Agreement legally enforceable?

Sure, but only if a properly structured agreement is used. In certain cases, an NDA may be unenforceable if it is excessively broad. For example, if you prohibit workers from utilizing any knowledge they obtained while working for you, your NDA may be put aside and virtually disregarded.

Instead, you should draft an NDA that is customized to your requirements. Including a list of instances increases the likelihood that the document will be legally binding. There is no need to impose further limits if you are especially worried about the usage of customer lists, for example.

What should a Non-Disclosure Agreement include?

An NDA does not need to be extremely difficult, but it should be explicit enough to fulfill your requirements without being unduly wide. Several of them are not very lengthy. You may specify extra words, however the following are the fundamental provisions:
Identification of the party

The agreement’s parties will usually contain a very simple description of the firm, person, or organization that has the secret information and the person or entity that must keep the information private.
Confidential information definitions

You should specify what information you want to target with the agreement. In certain situations, it may be as definite as any document labeled “confidential.” You may need a more detailed explanation or a list of multiple topics that are deemed private in other situations.
The Agreement’s Scope

You must select how limiting you want the agreement to be. For example, should the information be kept private? Or do you merely wish to limit information exchange with competitors?
Exclusions from the agreement

You may wish to expressly state that some information is not secret. Employee skills acquired while working for you might be a fantastic illustration.

Additional instances might include previously publicized material or scenarios in which they obtained the information from a source other than the person or organization having the protected information. These objects are unlikely to be protected if the case is heard in court, therefore including them as a particular exclusion is not a bad idea.
The duration of the agreement

You may choose how long you want the NDA to be in effect. You may provide no end date at all in certain cases. In other cases, a termination date may be required to guarantee that your NDA is enforceable. This issue will be treated differently depending on the information you are limiting and how stringent your NDA is within your area.

In general, a “reasonableness” standard must be satisfied, however state laws are not always clear on what “reasonable” means in the context of a non-disclosure agreement.

Non-Disclosure Agreements: How Long Do They Last?

In a non-disclosure agreement, you might occasionally add the phrase “no expiration date,” which means the material should be secured continuously. Yet, it is critical to be realistic about the time frame. Assess if the information you’re attempting to safeguard will be valuable in a year, two years, five years, and so on.

Your NDA is more likely to be judged “reasonable,” and hence legally enforceable, if you restrict the period. If the NDA is too restrictive and lasts indefinitely, it may be thrown aside and disregarded in certain cases.